Between 2006 and 2020, the world is expected to reach a peak in oil production where world demand for oil resources will be greater than the world's available oil supplies. Learn about oil and natural gas depletion and what that means for the global economy and our way of life in the United States.

Sunday, December 18, 2005

Goldman's Murti Says: `Peak Oil' Risks Sending Prices Above $105

Dec. 19 (Bloomberg) -- Goldman Sachs Group Inc. analyst Arjun Murti, who roiled oil markets in March by saying crude may reach $105 a barrel, now says that may be conservative if the ``peak oil'' theory is right and world supplies are running out.

The belief that the world's oil supply is close to an irreversible drop is no longer ``on the fringes'' of the market, said a research report by New York-based Murti, who forecasts oil of $50 to $105 a barrel until 2009. UBS AG analyst James Hubbard, a former oil engineer at Schlumberger Ltd., said an inevitable decline in supply will start sooner and be worse than expected unless investment increases for many years.

A jump above $105 a barrel ``is possible if we don't invest the right amount of money,'' Hubbard said in an interview in London. ``There will be a peak in production earlier than expected, and that post-peak decline will be more dramatic than currently assumed unless there is a sustained increase in investment in oil and gas production, greater consumer efficiency and alternative energy sources.''

While Saudi Arabian Oil Minister Ali al-Naimi and Exxon Mobil Corp. President Rex Tillerson say oil supplies will last for decades, energy traders are increasingly debating the amount of available crude. Oil's two-year jump to about $60 a barrel came as rising demand from China surprised suppliers, who had failed to spend on new pipelines, rigs and refineries.Investors who back the peak oil theory, such as Boone Pickens, a Dallas hedge fund manager and former oil executive, have fueled the price rally of the past two years, during which oil almost doubled, to reach a record $70.85 in August. Prices ended last week at $58.06 in New York.

The peak oil theory is based partly on the work of M. King Hubbert, a former Royal Dutch Shell Plc geophysicist who accurately predicted in 1949 that U.S. domestic onshore oil production would plateau by about 1970. Chevron Corp., the second-largest U.S.-based oil company, in its advertising declares, ``One thing is clear: The era of easy oil is over.'' Estimates vary on how much oil remains to be produced and when supplies will peak.

Tillerson in September told the World Petroleum Congress in Johannesburg that a U.S. Geological Survey estimate of 2 trillion barrels of conventional oil reserves still to be recovered is conservative, with the range of possibility as high as 7 trillion barrels. Less than 1 trillion have been pumped already.

Goldman's Murti in March skirted the peak oil debate. In a report last week, the analyst said it's something to monitor. ``It is possible that the peak oil theorists are correct,'' he wrote. ``If so, we think that the duration and magnitude of energy commodity price increases would be likely to far exceed what we are contemplating.'' He couldn't be reached for comment.